Shinhan dollar bond to kick off busy Asian Q2

Shinhan Bank is marketing a dollar bond, while Pakistan is on a roadshow for potential dollar notes.

Asian debt capital markets are set for a busy second quarter, with Shinhan Bank and Pakistan among the potential issuers already looking to take advantage of the still-low interest rate environment while they can.

Shinhan Bank is issuing a dollar-denominated three-year floating rate note, the first from a Korean financial institution in more than three weeks and the second one to issue in the offshore market this year after Kookmin Bank. The transaction – with an initial price guidance of three-month Libor plus 80bp – is expected to price on Tuesday during New York hours, according to a term sheet seen by FinanceAsia.

In addition to Shinhan Bank, the Islamic Republic of Pakistan is in the middle of roadshows for a potential dollar bond, according to sources familiar with the matter. For the sovereign, it’ll be its first dollar bond since 2007 when it issued a $750 million 10-year note, according to Dealogic data.

These deals come amid an improvement in market confidence triggered by Federal Reserve chairman Janet Yellen’s comments on Monday in relation to the US jobs market. She said there remains “considerable slack” in the US economy and jobs market, a sign that further monetary stimulus can be expected.

US Treasury two-year yields dropped 0.03 percentage points from almost their highest level in six months to 0.42% after Yellen’s speech, according to Bloomberg data. Benchmark 10-year US bond yields were little changed at 2.72%.

Window of opportunity

Debt syndicate bankers note that yields are still at manageable levels given that 10-year USTs touched 3.028% at the end of 2013 and anticipate a rush of deals before yields to trend back up beyond the 3% level later this year.

Analysts at Morgan Stanley, for example, predict that 10-year USTs will hit 3.3% by the end of 2014 while those at Barclays have a year-end forecast of 3.4%.

“Against a backdrop of a rising [interest] rate environment there will be a point where these issuers will realise that even though it’s not [where] they could have issued at a year ago, it’s better to issue now than, say, six months later,” said a Hong Kong-based syndicate banker. “You are going to see a lot of that decision-making from companies in, say, the next few months.”

General market sentiment improved last week as investors sought to hold emerging market debt again, having dodged it in previous months. Asian high-yield cash spreads tightened by 11bp last week, whereas Asia investment-grade cash spreads tightened by 2bp on the back of stronger market confidence, according to Morgan Stanley.

As a result, some debt syndicate bankers expect G3 bond issuance in Asia ex-Japan to reach $50 billion this quarter compared with the $42 billion recorded in the second quarter of 2013. A majority of that issuance will come from China – notably from state-owned enterprises, banks and policy banks – and South Korea, mainly because it’s a heavy year for redemptions for the country.

According to the data compiled by the Korea Center for International Finance, an estimated record $30.7 billion-worth of bonds sold overseas by local lenders, firms and the government falls due this year, up from $20.4 billion a year earlier.

In addition, regional bank capital issuance is set to remain strong along with sovereign bond sales, with Indonesia and South Korea next on the list after Pakistan, say DCM bankers.

Pakistan has mandated Bank of America Merrill Lynch, Barclays, Citi and Deutsche Bank to arrange a series of fixed-income investor meetings commencing Wednesday. A dollar-denominated benchmark 144A/Reg S transaction may follow subject to market conditions, say market sources.

Bank of America Merrill Lynch, BNP Paribas, Crédit Agricole, Citi, JPMorgan, Mizuho Securities, Shinhan Asia, Shinhan Investment Corp and Standard Chartered are joint lead managers of Shinhan’s dollar transaction.

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